LMS is publishing weekly updates, tracking remortgage market performance through the Covid-19 pandemic.
Seasonally, the months of March and April are historically the busiest in the year, with a significant percentage of ERCs completing throughout this period. However, despite a reduction in interest rates, the of the Covid-19 crisis has given rise to a number of challenges. Tighter lending criteria, consumer income reduction & unemployment, and loss of all physical contact are all making their mark.
The following update, using LMS’ proprietary data on remortgage instructions and completions, seeks to provide clarity around the current position of the remortgage sector and to give an illustration of the status of the market and current volumes.
Remortgage instructions
LMS said March began with steady instruction volumes, until tighter restrictions on social gatherings were announced mid-month. At this stage we saw a stepped drop of around 20 % in new instructions. Volumes have since steadied around this new position, with some variation, but without continued decline.
The fall in instructions comes as no surprise, as the vast majority of lenders withdrew LTV products above 80% due to issues with valuations and their own desire to manage instruction numbers in line with reduced processing capacity. These restrictions will primarily impact complex cases, with a reduced range of products available to this group.
As a result, to avoid ticking onto their lender’s SVR, some individuals will have to opt for an alternative solution, such as taking a payment holiday while the market rebalances. On a positive note, this indicates that current instructions should be more straightforward, and that processing them should be simpler for the firms involved.
Over time, LMS says we can expect restrictive criteria to loosen as lenders start to understand the risks and opportunities around AVMs, with desktop valuations for more complex work and deals becoming available in the future.
As we enter April, whilst instructions remain 20% behind seasonal expectations, the levels have remained steady since lockdown measures were announced in the middle of March – illustrating that the market has readjusted, preventing a continued downward trend.
Remortgage completions
Completions dropped in the second half of March, in part reflective of the usual trend of numbers trailing off from the start to the end of the month. Initial signs from our April data are very positive. Volumes are 30% up month on month and are ahead of 2019 activity, largely down to a peak in ERC expiries, with 11% of all ERCs for 2020 coming in April. Looking forwards, LMS says there appears to be some slowing of pipeline activity due to processing challenges such as access to redemptions statements, and the extension of funds request timelines by lenders to allow everyone to manage capacity.
LMS says that current activity is reassuring, however, and even though these process issues need to be ironed out, the industry as whole is finding solutions to handle cases and keep the market going. We’re seeing that many companies are well positioned to work remotely and adapt to new enforced working arrangements – which is testament to their hard work to ensure they can continue to deliver service levels throughout this time and achieve positive results.
Nick Chadbourne (pictured), CEO of LMS, said: “Despite the stepped drop in the middle of March, we are seeing healthy volumes entering the pipeline and existing remortgage business is continuing to be processed as usual. We can also cautiously predict a strong April, thanks to a peak in ERC expiries and a strong pipeline compared with the previous month.
“March 16th was a critical moment for lenders, with many removing +80% LTV products and limiting the progression of complex cases, delivering the drop in instructions we witnessed.
“The remortgage sector remains fully open for business, and as it refines processes and adapts to this new situation, capacity will only increase. We’re in uncharted waters to some extent, but knowing how the market is performing in real time could make a big difference for firms attempting to navigate their way through the crisis. As such, we’ll be sharing information on as many useful data points as we can.”